Key Developments that shaped the Contributory Pension Scheme in 2021 (Part 1)
The National Pension Commission (PenCom) started and enforced major guidelines and changes that determined the affairs of the Contributory Pension Scheme (CPS) and the Nigerian Pension industry in 2021.
PenCom, led by the Director-General Mrs Aisha Dahir-Umar, achieved several revolutionary landmarks during the year 2021. Some of the key initiatives included the increase in the minimum share capital of Pension Fund Administrators (PFAs) from N1bn to N5bn, automation of the annual pre-retirement verification and enrolment exercise for retirees and prospective retirees, the introduction of the Non-Interest Fund (Fund VI) and securing the Presidential approval for payment of outstanding pension liabilities under the CPS.
Additionally, the first Retirement Savings Account (RSA) Transfer Quarter was completed in the year. This is after the launch of the RSA Transfer System on 16 November 2020. Also, they kickstarted the Nationwide Data Recapture Exercise (DRE) for RSA holders to ensure that all existing pension contributors and retirees are captured on the Enhanced Contributor Registration System (ECRS).
Here are some of the breakthroughs recorded in the pension industry in 2021:
Increase in the minimum share capital of PFAs to N5bn
In April 2021, PenCom announced an increase in the Minimum Regulatory Capital of Pension Fund Administrators (PFAs) from N1 billion to N5 billion. The PFAs were granted a 12-month period, effective 27, April 2021 within which they were to meet the new minimum regulatory capital.
The need to improve the capacity of PFAs in terms of operational efficiency and effectiveness as well as service delivery brought about the upward review of the minimum regulatory capital. It would be recalled that the minimum regulatory capital for PFAs was last affected in 2012.
Since then, there has been significant growth in the value of pension assets under management from N3 trillion to over N12 trillion in December 2020. The sustained growth in pension assets implies greater fiduciary responsibilities that require more operational capacity by the PFAs.
Payment of outstanding pension liabilities under the CPS
In July 2021, PenCom secured the approval of President Muhammadu Buhari for payments of some outstanding pension liabilities of the Federal Government under the CPS.
The Presidential approval covered the payment of outstanding accrued pension rights for verified and enrolled retirees of Treasury-funded MDAs that are yet to be paid for their retirement benefits, as well as the backlog of death benefits claims due to beneficiaries of deceased employees of treasury funded MDAs.
Furthermore, the President also approved the payment of 2.5 differential in the rate of employer pension contribution for FGN retirees and employees, which resulted from the increase in the minimum pension contribution for employers from 7.5 per cent to 10 per cent, in line with Section 4 (1) of the Pension Reform Act (PRA) 2014.
The payments for retirees and existing employees were to take effect from July 2014. Consequently, the Federal Government was expected to continue with the payment of the 10 per cent rate of employer pension contribution for its employees, thus ensuring remittance of at least 18 per cent monthly contribution (employer 10 per cent and employee 8 per cent), as provided by the PRA 2014. PenCom subsequently ensured that the aforementioned pension liabilities affected retirees and employed were remitted into their various Retirement Savings Accounts (RSAs) with their respective PFAs.
Online Enrolment and Verification Exercise
On 1st September 2021, PenCom started the online Enrolment and Verification Exercise for 2021 retirees and prospective retirees of Treasury-funded Ministries, Departments & Agencies (MDAs).
This follows the launch of the Online Enrolment Application which was designed and developed in-house by PenCom. It would be recalled that the emergence of the COVID-19 pandemic in early 2020 had prevented PenCom from conducting the annual physical enrolment exercises hitherto conducted nationwide and entailed a mass gathering of people.
All retirees and prospective retirees for the year 2021, as well as those that missed previous enrolment exercises, were required to complete verification and enrolment to enable the computation of accrued pension rights for their previous active service up to June 2004 when the Contributory Pension Scheme (CPS) started.
The online enrolment and verification exercise required retirees and prospective retirees to undergo three stages including, Registration; Verification; and Enrolment by logging on to the PenCom website.
Introduction of the Non-Interest Fund (Fund VI)
In October 2021, PenCom introduced the Non-Interest Fund (Fund VI) and also issued an Operational Framework for the Fund. This is in accordance with Section 7.3 of the Regulation on Investment of Pension Fund Assets issued by PenCom, which established the Fund VI among the Fund types to be managed by licensed Pension Fund Administrators (PFAs).
All PFAs were therefore required to create and maintain the Non-Interest Fund for interested Retirement Savings Account (RSA) holders. The Fund shall be separated into two funds for Active RSA Holders and Retirees, respectively. The Non-Interest Fund is a fund that complies with the provisions of Islamic Commercial Jurisprudence and any other established non-interest principles, as approved by the Financial Regulation Advisory Council of Experts (FRACE) or any other body constituted by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission, from time to time.
To boost confidence amongst pension contributors and retirees, the FRACE, has certified that the Operational Framework issued by the Commission complies with non-interest (Shariah) finance principles. The Non-Interest Fund provides the opportunity for interested RSA holders to have their pension contributions invested in ethical instruments.
It is expected that the creation of the Non-Interest Fund by PenCom will complement the efforts of other regulators in the financial sector in promoting the issuance of structured products that comply with the applicable principles to further provide viable investment outlets for pension funds.
This is a PenCom publication.
As an active retirement savings account (RSA) holder, you are eligible to move your contributions to the Non-Interest Fund (Fund VI). Your RSA is money set aside from each paycheck and deposited with a Pension Fund Administrator (PFA) for a financially stable life in retirement. To save for retirement, open a Retirement Savings Account (RSA), and have 10% of your income go into your RSA. For more information on RSAs, contact Oak Pensions via www.oakpensions.com, firstname.lastname@example.org or call the Marketing Manager on 09087448661.